How I Invest with David Weisburd - E407: Why Venture Capital is Becoming a Winner-Take All Market

Episode Date: July 24, 2026

Venture capital has never been more competitive. Aram Verdian argues it has also never been more concentrated. Drawing on Accolade Partners' research across more than 3,000 U.S. venture firms, Aram explains why fewer than 20 firms have consistently produced 3x net returns, what separates the firms that keep winning, and why venture is increasingly becoming a winner-take-all business. From portfolio construction and manager selection to AI, late-stage investing, and fund sizing, he shares the framework his team uses to identify the next generation of exceptional venture firms.

Venture Capital has never been more crowded. According to today's guest, it has also never been more concentrated. He believes the industry is becoming winner-take-all. A handful of firms will capture the disproportionate share of the industry's returns. Everyone else will be fighting over what's left. Today's guest is Aram Verdean, partner at Accolade Partners and a former investor at Indreason Horwitz. Without further ado, here's my conversation with Aram. Aram, you believe venture capital is becoming a winner-take-all market.

What's underpinning that? Yeah, and maybe I can unpack that a little bit because it sounds like a really strong statement. A couple of things I'll say. In venture, and you can go back many, many decades, there's this concept of dispersion of returns where a handful of firms generate most of the returns. So if you look at going back 40, 50 years and you look at the value that's generated by venture-backed companies, there's only a handful of firms that are participating in those companies at the early stages and own meaningful amounts on their cap tables.

So double-clicking on that, if you look at the dispersion of the top-desal, top 5% in venture relative to the top quartile or the median, that delta is larger than in other asset classes in the private markets. And so if you want to look more recently, and our database has shown this, we've looked at, and our data is only U.S. We've looked at over 3,000 venture capital firms in the U.S. And our data has shown that there are less than 25 firms out of 3,000 that have consistently generated. 3x net or better funds consecutively, which tells you there's less than 1% of the firms can consist and generate 3x net. And why is it 3x net? Why is it not 2x, 2.5 net?

Well, in venture capital, you're waiting for 10 plus years to get to liquidity. And so you need to outperform the public markets and other asset classes in the private markets that can generate liquidity more quickly, even if the return profile is slightly lower than the 3x to essentially justify that illiquidity. And today, if anything, the liquidity in venture is further stretched out. The average unicorn is over 12 years old in the U.S. And so for that, you need to generate two, three, 400 basis points net above the public markets and also private equity.

They can get you 2X more quickly. Because of that, we have found, and this is how we have done our investing over the last 26 years, there are only a handful of venture capital firms that can be in that less than 1%. So is it a winner take all? I think the conclusion is, and when I unpacked that statement, is there's only a handful of firms across the whole stack of venture capital that can generate that consistent 3x net plus returns. 25 firms out of the 3,000 that you studied. Less than 25. I'm being generous.

It's actually less than that. And by the way, let me give you more specificity on that. Our database shows Vintager 2005 through today, so about 20 years, where we have found out of 3,000 venture capital, companies in the US, only 20 of them have generated consistent 3x net returns. So 20 firms out of 3,000 have consistently generated 3x net returns. What do you make of that data? It tracks to the concept of dispersion of returns in venture. Because every year, David, if I asked you how many companies matter?

And let me define what matter is. Multi-billion dollar outcomes in the public markets or M&A. Like 5, 10 billion plus. How many companies are there per year? there aren't going to be 30 to 50 every year that are generated at a venture back. It's probably going to be 10, 20. If that, there are years where it's far less than that. And so it actually tracks to exact with that.

And so how many firms are going to be backing the C, series A, series B of those companies where they own enough where a single deal can return multiples of their funds? So it actually, like, it's less the underlying fund data. You have to double click on that and say, what's driving that? It's the actual company dispersion at exit that matters. The other way to think about it is I think a lot about how much is raised by venture firms and what needs to happen to generate a 3x on the overall fundraise.

So depending on the year you look at, we were at 1.200 billion during COVID, then less than 100 billion. We're sort of right around 200 billion plus at this point per year, raise in venture capital on the US. To 3x stat, you need to generate over a trillion, 2, 3 trillion in market cap it exit

and own enough of those companies to get a 3x on the 200 billion raise for that one year? Well, I would argue you can get to $3 to $5 trillion in enterprise value at exit, but how many companies are going to do that collectively? It's going to be an anthropic, open AI, data bricks, SpaceX, etc. They're not going to be many that are going to get you to that $3 to $5 trillion. So it goes back to the same dispersion of returns at the company level. So I want to double click on that.

There's this meme of top quartile returns. Professor Steve Kaplan showed that roughly 50% of that. continue to be top quartile. Do you disagree with this thesis? No, I don't. I don't disagree because there's definitely persistence. I think it depends on which pocket of the market do you plan. So persistent is much harder in pre-seed seed than it is, and I would say maybe the larger bracket firms.

So pick your top five, 10, Sand Hill firms. There is significant persistence in returns for those. firms because of the brand that they have the brand is an output from the returns they've generated in the past and the outcomes they've had through IPOs and MNA events and those outputs then lead you to the next generation of entrepreneurs wanting to work with you having the reputation then to come in and lead their rounds see this much harder because a lot of the times if you're an inception check in a company the company is not known yet whether it's a good

company or it's not a good company you're taking significant founder team product market risk. Today, you're taking a lot less of that at the Series A and the Series B. Companies have revenues. It's they're raising bigger rounds. The entrepreneurs have shown some traction. There is enough semblance of product market fit. But at the pre-seed seed, persistence is much harder because the level of risk you're taking

at the time you're investing is very different. Give you more specificity, those 20 firms that we talk about over the last 21, 22 years. A lot of those are not seed funds. A lot of those are the bigger firms. And that's because brand begets the top deals. The top deals preserves a brand and this is flywheel effect. The flywheel effect continues. Exactly.

Now, it doesn't mean it can't happen in seed. I'll give you an example. So we backed the manager who, we backed many managers in seed. Seed is much harder today than it's ever been. So if you are doing seed, you need to have what I call the right to win. Why are you the generalist firm that can win the best deal flow at the earliest stages? This was much easier in 0809 when there were 20 firms and there wasn't much adverse selection. you get 15, 20% ownership in the best enterprise software companies

because there were literally 20 legitimate seat firms. Now they're over 2 to 3,000. And so why are you as a generalist firm to one winning it? If you have very specific differentiation and a right to win and you stay disciplined in terms of your fund size, you're going to continue to do well in seed. There are firms that get very large in seats. So I'll give an example.

So let's say your best funds were $40, $50, $70, $100 million funds. And you had three in a row at three. So you would fit into this 20, but you're now raising $500 to a billion fund. Because of your success, you got much bigger. The problem with that is at that point, you can't do the deals you did when you were a $40 million fund. And now you're competing against the big firms. So you're in a whole different ballgame altogether. So consistency and a right to win and seed, if you have those two elements,

can actually keep you in the category of the consistent in those 20 firms. But there are very few of them. There's few firms that have that right to win. few firms that stay small if they have that right to win. Because if they're not small, they're going to start competing with the big firms. And I will tell you we're not always right,

but if I look at the last two decades and you and I can debate this, how many firms in your mind have emerged as firms that can effectively consistently vintage after vintage compete with the big firms? Very few.

Really, very few have. I mean, if you look at you've got founders drive and recent, those were started in the last two decades. They've effectively competed really well and they're in the top bracket. And then you have some solo GPs

that have done an incredible job and they have a right to win, they've developed a brand and they can effectively compete with the big firms. But outside of that, it's really hard. Now, if you're a seat firm and you have a $100 million fund and you're focused on technical founders and AI

or you're focused on inception stage, co-founding of, we have a firm that's focused on energy, climate, insured tech retail. They essentially are such experts in those fields. They're almost like co-founders. They find the problem, the niche in the market, because they know the customer said they know where the product market fit is. They know the entrepreneurs and the operators well.

They almost co-found the companies together. They have a right to win and there's no adverse selection there. And if they can stay consistent with their strategy and their fund size, they can continue to deliver great returns. That works really well in Seed. What doesn't work well, if you take those two examples I just gave you and it blow it up to a billion dollar fund, it becomes much harder at that point to generate those returns. At some point, a niche strategy, if it gets too big, now you're again competing against the big brands,

and the brand flywheel is just too much to overcome. Some firms have done it. It's just really, really hard, David. And like, as I said, their thrive founders and recent just over the last two, two and a half decades have reached that top echelon, some solo GPs have, but it's really hard. And we see spinouts all the time that are, I call it sort of the messy middle. It's actually the hardest place to invest in where it's not seed. It's not billion plus big firms.

It's sort of in between. But the in between is hard because you can do the seed rounds because you're too big structurally. You can do the $2 million round. You can go and camp at Berkeley or Stanford and be like a technical co-founder like a $75 million fund would do. But you're also big enough where you are going to bump into the big firms. And so you're in this messy middle where it's really hard for you to, one, get the best deal flow at the seat, structurally you can. And two, you don't necessarily have the brand to win the best deal flow against the big

firms. The event just become really confusing over the past five years, at least for me it has. Maybe you could unpack how adverse selection works at the early stage. This is a concept we grapple with a lot. We are believers in strong portfolio construction, and that's where adverse electionary comes in. What is portfolio construction to us? It's the concept of portfolio construction is not just numerically fund-size ownership in a company. It is the following. Subjectively and qualitatively, first we think about where the manager is playing, whatever subde sectors therein, at the reasonable exit outcomes with dilution, can a single outcome return multiples of your fund?

essentially it boils down to this. Now, if you are in the hottest categories of an AI, 5% ownership may do that for you. If you're in a niche market, 20% may be necessary to answer the question. So, and now if I go back 20 years, portfolio construction, it was much easier for you to get 15, 20% ownership

in the hottest categories in software. There were less firms. It was not as competitive. You didn't necessarily have to show the right to win because there just weren't many options. If you were doing a seed round in 0809 or 2010 over 1 to 2 million, structurally the big firms weren't doing that. Companies were becoming more capital efficient where they didn't need to raise an A.

They could actually get off to product market fit with 1 or 2 million. That's where microvc was born. It was called microvc now seed. Today, with over 1,000 firms, it's really hard to get that 15, 20% ownership unless you're one of those firms that almost is like a co-founder. You're an expert in the field. You broaden the idea. There's no adverse selection there because you, your,

yourself are the expert and you almost served like a co-founder on that deal. It doesn't mean you're getting 30 to 50% of the company. You can get a solid 15% plus with a sub 5 million dollar check. But if you went head on today and said, I'm going to play in the hottest category of AI and try to get 15, 20% ownership on a sub 10 million dollar check, that's really hard to do. And if you do do that, there could be some level of adverse selection there. So we think a lot about two things. One is that question I mentioned, a single company, wherever you're playing in the market, subsector end market, can return multiples of your fund. Secondly, we do care about the manager's ability to lead around.

Why does that matter? Leading round qualitatively tells you that there is a strong signal. The founders want them as the most meaningful investor on the cap table, at least in that round, which means to value their counsel. They want them potentially on the board down the road. But small participatory versus lead or co-lead are very different signals to us. Maybe you could double click on that. This is early stage only, not late stage, because like leading in late stage is really hard.

So if someone is doing Harvey at $8 billion or Anthropic at whatever, $60 billion, $4 billion like you did, like you can't lead that. Structurally, that's hard. I'm thinking more it's a sub $1 million dollar valuation, sub $50 million valuation. You're structurally designed as a firm to write the type of check where you can lead. We're looking for firms that can do that because going back to my initial point on a single company can return multiples of your fund, mathematically it's much easier for you to do that if you are a lead or a co-lead than if you're participatory.

Take a $50 million fund that owns 5% of a business. Typically there's 50% dilution through the arc of the company raising over multiple rounds, over 10 years. So let's say you own 2.5% of that company. If it sells for a billion dollars, you return half of your fund. You need 10, $1 billion outcomes to get a sort of a 5x mid-3s net fund. Getting 10, $1.1 outcomes is really hard. Now, you can have $1, $10 billion outcome,

that works, but it's really hard. That fund math is really hard. What you really want is if you have a unicorn outcome, it returns multiples of your fund. And then if you have a $10 outcome, you don't have a $3x fund. You have a $5 to $10 fund. Now you have an actual, like,

top 1% fund for that vintage. So the way you do that is you don't own 5% up front. You own 10 plus. And with dilution, maybe you end up at 5, 7, 8%. You have a billion, $2 billion outcome. You just return multiple turns on your fund. You have a $10 billion dollar outcome. you're going to have a 10x fund.

So leading is important to us, and it doesn't have to be consistently 100% of your deals you have to lead, but you do have to have this muscle of like in my core deals, I'm going to be lead or co-lead, and I want to be a meaningful investor on the cap table of this business. Because if it works, it's going to be meaningful to my fund. Now, that's not always the case, right? Because you can own 0.01% of Anthropic,

and it's going to be really meaningful. So you need to break that rule, and it can be some percentage of your fund where you say, I'm going to break that rule. But a big chunk of my fund is the core deals I'm doing where I'm leading or co-leading. So it's not a dogmatic. Every deal has to be that. Most investors don't lose because they lack information.

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90-10, like, it depends on the manager. We've seen 80-20, we've seen 75, 25. Is there something to that in that you have very strict rules and then you have a very specific buy box? No, it depends on the manager. If the manager has an incredible network and they believe they can access

the top 0.1% entrepreneurs. Say they're running, I'm going to give an example, say they're running a $150 million fund. And this manager's bread and butter is a two, to $4 million check for 10%. Technical founders early on. I mean, we have this from.

We're back in their fund too now. But this GP has such an incredible network with a 0.1% entrepreneurs where they can get access to those deals. But those deals are massive rounds and huge valuations. On a $150 million fund, you're not going to lead. You're not even a co-lead. You're going to be like the little participatory check. But the outcomes can be so large in those deals.

You can still return a big chunk, if not multiples of your fund. And so if you have a special person like that, you should. shouldn't constrain them to 90-10. If they want to do 70-30, go for it. It goes back to that same criteria if it could be a fund returner or multiple fund returner. That's really the thing. And if you are going to say, by the way, there are firms which have proven everything I just said wrong, which are all participatory, no lead, and they've killed it. The way they have done it is this GP that I described, they're doing that 100% of their time. They're in the right networks. they are consistently getting access

to the 0.1% entrepreneurs and they are not ownership dogmatic. It's just really hard to do that because in every single one of your funds you're going to need not one, not two, but multiple winners, or one mega-meagre winner to drive the 3x net returns.

And I go back to Venture is one of the hardest asset classes to generate consistent returns. And the 20 firms out of 3,000 is exactly that data point is we see a lot of firms that have 110x fund and then it's harder to generate not the 10x but the consistent 3x net.

So you want to make sure that your strategy is such that and consistent that vintage after vintage you can still generate those consistent returns. By the way, we, I think what's the phrase is like, we eat our own cookie, like even us accolade as a fund of funds we're disciplined in terms of fund size. We didn't increase our fund size by $1 last time. It was $500 to $500.

We are luckily in that same bucket where we have generated, we're in those 25 firms where we have generated consistent REXNAT to RLPs, but the way, if we were now and raised a billion dollars, we wouldn't be able to allocate it. We would generate the average returns in venture, and the average venture returns, like you can probably do better in the private equity or public markets.

So consistency is equally important in your strategy. Is that because your managers are capacity-constrained themselves? The answer is yes. And I actually went another podcast, David, and I talked about how we don't, we actually want to be a big part of the managers. Once we have conviction, we can be as high as, I mean, we've been 50% plus of a manager's fund. And some managers love that. Some really want to diversify.

And we have this conversation a lot with the GPs on why we're the right partner, even at that level of concentration with them. But yes, I mean, it's typically at Fund 1, when it's not as obvious, you can be a big chunk of the fund, by fund three, four, when it's obvious, like it's harder to be 30 to 50% of the fund. So, but if we could, that's the way we'll scale our fund. We typically invest in no more than 18 to 20 managers in every one of our fund of funds.

So if you said every manager is 30 million, bottoms up, that's the fund size. If we can get 50 million, then we can raise a billion dollars. But getting 50 million and a $75 million fund, really hard to do. This is a theme I keep hearing over and over hundreds of episodes, this idea that there's just not that many great investments. Alpha is just scarce.

Charlie Munger used to say when you graduate, you need a punch card of 20 investments that you should make your entire career. And that's it. And you need to find those 20 best opportunities. Peter Thiel says his biggest regret was not doing Facebook Series A after he did the seed investment.

These exceptional companies, you know, it seems like they're commonplace today really historic. there just extremely rare. I totally agree. We talk about the limited number of funds to invest in, and to your point, the limited number of companies to invest in as well. There are more points today in a company's life cycle to put money to work

than there was maybe 10, 15 years ago. Late stage is a new asset class altogether in terms of you can actually generate venture-like returns at the mid-stage, potentially even late-stage, depending on the company. That really wasn't the case 10, 15 years ago because structurally, a lot of the appreciation would happen in the either public market. Today it's happening in the private markets. As I said, the average unicorn is private for 12 plus years.

So if you are targeting a select few companies, you can invest across multiple cycles, much harder with funds. You got one, it's usually one and on close over two months, and that's it. So it's much harder for you to scale your check in a way you could in a company over multiple rounds. By the way, the other thing I'll say is if you are able to scale your check to 50 to 100 million in a small fund, it's usually not small anymore. They've gone much bigger, which then puts the consistency into question. So you could raise a billion, two billion as an allocator and invest significant dollars in firms that have grown a lot, putting aside the big firms, but the seat firms, say take a seat firm that's 75 million, not raising 500. Yeah, you could probably get 100 million if you were 30 into 75. The question is, do you want to?

Is that the right time to double down on that firm? What I would rather do is go to the GP and say, hey, raise another 75 and we'll do all your. or 75. And by the way, that's a conversation we constantly have with GPs. That's actually where I wanted to go, which is you mentioned that you guys oftentimes are 50% of a fund. I guess you could do up to 100%, at least in theory. In theory, yeah.

They might as well just work with us in one office at that point. Might as well give them that. What do you think, by the way? You're thinking maybe down the road you raise a fund. If an LP came to you, an LP was highly educated in the space and you really bond with them, like you aligned with them in their thesis, and they told you, we want to be 50% plus of your fund. How do you react?

I think there's not that much differentiation on the LP side, similar to how you think on the GP side. And I think some LPs are extremely differentiated. What does that mean? I think there's significant information alpha in the private markets, especially around venture. LPs have our LPs in many different funds. As venture becomes more and more consensus,

oftentimes they know which companies to focus on. And I think a true great LP partner is extremely valuable. If that happens to be the case, if there's an LP partner that truly has that information of symmetry, I think it makes a lot of sense. I always wonder because a lot of GPs, they're focused on having a lot of diverscation in case some LP doesn't re-op. now they have a hole in their portfolio, but I feel like once you're on your fund three, fund four replacing one LP is not the end of the world. And I think really partnering with the right

people, all things being equal, I think that's more valuable than diversifying your LP base. I totally agree with you. And I mean, you don't have to use as an example, but say this LP, this hypothetical LP, say that don't re-up with you. And there were a big chunk of your fund in fund two or fund three. It's a big hole. But there is usually a specific reason they're not re-upping with you because they have been consistently allocated in the venture for decades. So if they're not re-oping with you, your team blew up or performance was not what was expected, in which case, it's not an issue that only they're facing. The rest of your LPs are going to be facing as well for your next fundraise. It would be very rare for that type of LP

that you described, not to come in, but everyone else in your LP basis is supportive of the next fund. I've yet to see a scenario like that ever take place. What's your pitch to GPs, why they should take 50% of your capital and these really difficult to access funds. The first thing I say is talk to every manager we've backed in the past and we give them the whole list. Tell this to myself and we tell this to our team and we all hold ourselves of the standard. We want to be the LP that when you were first getting set up, we helped you literally get your operation set up.

We worked with you and maybe even co-drafted your LPA. We helped you with your deck when you were first ideating on what you were doing. we helped you with everything from LP composition portfolio construction strategy not directing you what to do but helping you think through it thought partner we want to be the first call you make when you think about raising a fund and then be a thought partner in that ideation process after that once we become an investor with you

we add a lot of value to the GPs now introductions everyone makes intros we will help on the ground level with the portfolio companies where we can will help you interview candidates. We will help you with other LP interests and other GP intros, either for your companies or for yourself. The thing I pride ourselves on is I consistently see this in our team and with our GPs. We get calls from our GPs at like 9 p.m., 10 p.m. 11 p.m. When they have a problem or they have an issue.

They have a conflict of interest. They're thinking about a staff member. They're thinking about a cross-fund investment. They're thinking about whether they should sell a company and what piece to sell. And they're calling us late at night. That's the call we want to. to get as an LP. And that's the message we want to send to every one of our GPs. When you're having a good day or bad day, when it's late at night and you want to talk to one of your LPs, we are the

LP to call. And we're always going to pick up the phone. How do you earn that first call? You show that hustle and ability to help and be a partner from day one. I mean, everything I mentioned from you, they're ideating their deck, pushing them in all the right ways, helping them and giving them the feedback, helping them set up the firm. They see you as a true partner, not just an LP-GP relationship. I think about this. We're actually talking about my mentor, Eric Anderson. He taught me this, which is there's some advisors that are, me and him have had many fascinating conversations over the years, but he said that there's two types of advisors, ones that are absorbers and ones that are amplifiers. So sometimes you call an advisor and with a big emergency, you end up basically, instead of them being there and listening to you and helping you end up having to

calm them down. They amplify. They make it worse of an issue. And there's some advisors where you could tell them our fund is going to deliver zero X and they're going to start like coaching you through it. Those are kind of the two extremes. Is there something to that? We are the type of partner where if someone calls us with something, we're not going to tell them, oh, this is what you should do. We're going to actually work through it with them and they're the ones who are going to make the decisions. But we're going to show them potentially all the potential blind spots we've seen over the past two decades. I'll give an example. So if a manager calls us and says, I got this position, I can sell a piece in the next round. Should I sell or not? How much should I sell?

Or should I just keep rolling? We're not going to have this like strong reaction. Oh, you should sell all of it or you should sell 50% or you should roll the whole thing. What we're going to tell them is let's actually talk through it. And how would we talk to it? We'll say, okay, let's think about where this investment is in which fund. Where is the life cycle of that fund? Let's think about what is the return profile of that investment at that stage you're thinking of selling grow up to the fund size. Tell me what your conviction level is in that company at that valuation going forward and what the potential

return profile would be. Now, the manager talks through all these things with us. By the end of it, they actually come to the conclusion themselves because they're thinking through all the different avenues and all the different dimensions to make that decision. That's why they're calling us. They're not calling us to say, tell me what to do, but tell me about all the ways

I should be thinking about this and all the different blind spots that I haven't seen before. Hunter and Satya from Homebrew says that every round you need to to be either a net buyer, net seller of the company. And that's the way to look at it. Is that how you look at? It depends.

You would answer those questions, right? Like, where are you in the fund cycle of the fund? Do you have conviction in that company? So you have a lot of conviction in that company. Even if it's returning the fund, you can say you're still net buyer. Maybe the valuation is attractive. Maybe you see significant 5, 10x plus upside from there. Or maybe you don't where you think valuation is overstretched.

I'm already eight years into the fund. It's returning three times my fund. So I'm going to take 1x DPI on the whole fund out to deal. to de-risk. That can be a great way to do it too. It really depends. As a fund of fund, you're investing into the top GP. So you guys are in some ways slightly misaligned,

meaning that the GP is managing their career. They want to always make sure they have this 2x, 3x fund at a minimum as an LP, 3X, if they're one of these 25 funds. And the LP in many ways wants the most spikiness. They want them to get a 15x or 0x in theory. Why do you think the LP won't spikeiness? I think because they have more shots on goal

because they have a portfolio approach. You feel that way about fund the funds? Well, that's actually my question for you. Is that how you look at it? We've looked at our performance over this. We've consistently generated great returns for our LPs. We've been very fortunate, and this is all thanks to our GPs way back. We have had some funds that have been spike,

underlying funds that have been spiky, but we've also had significant consistency where we find a significant chunk of every one. one of our fund of funds is 3x net or above. So I think we should for more durability and consistency in our underwrite, then let's try to get spikiness. And it goes back to my point of participatory or lead. If you're constantly participating in deals and not leading, you will probably hit an anthropic in one of your funds. But hitting an anthropic every two years is really hard. So if you hit an anthropic and you own less than 1%, you're going to have a 10 to 15x

fund, maybe more. But that model for you to be spiky every vintage predicates on you finding an anthropic every two years. It's really hard. We want GPs who have a consistency in their strategy, and maybe there's a bucket. It's a 90, 10, maybe 80, 20, 70, 30, where that 30%, they can still find the anthropics of the world, but they're focused on their bread and butter, which is leading, co-leading, in the lanes where they have the right to win. That's where you can see more consistency. The other thing is, if you think about fund of funds versus like other LPs that have one pool of capital, we don't have one pool of capital. We raise our funds every two years. So we want to show consistency in every one of our fund of funds. In order to do that, we don't

want one fund to be spiky and the other one not. So we rather have two, three to four X net fund of funds in a row than have a five X fund and a one and a half two X fund. So even on the GP level, you don't like that spikiness? Oh, we'd love when we have a 10x fund. but coming in to do the underwrite, we're not underwriting a 10 to 15x fund. We're underwriting on the reasonable exit assumptions with where the manager is playing, their portfolio construction,

their right to win, their team, can they generate 3 to 5x net? If the answer is yes, great, and then if they outperform, they can get a 10x bus. But that's not the expectation we come in with. Everybody talks about the power law. It's almost right at this point,

and everything is driven by these power law outcomes. Depends what markets you're in. So if you are a $75 to $100 million fund, you focus on technical founders or you focus in maybe not the hottest AI areas, which are both in terms of round sizes and valuations through the roof, you can still do really well and get a 3 to 5X net fund. Like take healthcare IT as an example.

Healthcare IT is not going to command multi-100 billion plus exit outcomes. I mean, there might be a few companies like that, but it's like open evidence, etc. But there usually aren't this man. Summer's here, which for me means occasionally trying to escape New York City on the weekend. When I get time off, the last thing I want to do is worry about keeping my personal finances organized and my budget and balance.

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expenses before they become surprises. Also like Monarch's AI assistant, you can ask questions like how much I spent on travel last summer or how many subscriptions am I paying for and get answers instantly. Use Code Invest at Monarch.com to get your first year off, Monarchcore, half off, at just $50. That's 50% off your first year at Monarch.com with Code Invest. Summer is here. which for me means occasionally trying to escape New York City on the weekend. When I get time off, the last thing I want to do is worry about keeping my personal finances organized and my budget and balance. With a little advanced planning and powerful software tools, I can enjoy the summer

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Summer is here, which for me means occasionally trying to escape New York City on the weekend. When I get time off, the last thing I want to do is worry about keeping my personal finances organized and my budget and balance. With a little advanced planning and powerful software tools, I can enjoy the summer knowing my money is taken care of. Monarch is the personal finance app that tracks everything, accounts, investments, saving goals, and spending. Get your first year of Monarch core for half off, just $50 with promo code invest. What I like about Monarch is that it takes the mental load of managing your finances off of your plate. Instead of checking multiple accounts and spreadsheets, you could see everything in one place. The AI, we

Recap is especially useful because it flags spending spikes and upcoming expenses before they become surprises. I also like Monarch's AI system. You can ask questions like how much I spent on travel last summer or how many subscriptions am I paying for and get answers instantly. Use Code Invest at Monarch.com to get your first year off, Monarch Core, half off, at just $50. That's 50% off your first year at Monarch.com with Code Invest. You're really underwriting to, can I add $1 to $5 billion exit outcomes? generate exceptional fund level returns, even less than a billion-dollar outcomes. And if you do that,

you can generate consistent returns. So, but if you're one of the big firms, so you are on Sandhill billion plus funds, I mean, you are playing the power law on steroids. That's what you need. You don't need one. You need three to five deco-corn's huge outcomes to returns multiples of your own. I mean, we did this analysis for the big firms. You need anywhere from 30 to 50 billion in exit outcomes, every vintage to generate a $3 to 5x fund, $30 to $50 billion.

Now it's possible, right? Because we talk about Anthropic, Open AI, Thadabric, SpaceX. But you've got to have that every two years. It's hard. I remember only a couple of years ago

Founders Fund was telling all their LPs we need to hit $100 billion outcome in every one of their funds and a lot of LPs told me that's just crazy. And then now you have

these $3 trillion plus. And Founders Fund is done an amazing job. one, identifying those companies, but also doubling down on them across multiple their funds. Concentrating. By the way, concentration comes in two forms, and both are powerful. One form of concentration is what I said, ownership up front, defending it so that you think about the exit math relative to fund size.

The other way to concentrate is dollars of the fund. So a percentage of dollars in a single deal. So if you have a runner in the portfolio, we are totally fine with the GP putting 20, 30 percent of their fund into a single company. We're totally fine with the level of concentration. We just backed the fund. It's a fund one, and their concentration limit is close to 40%. We're totally fine with it because we trust the GP.

They're going to invest early in the companies, and they have a great way to assess the mid-stage, late-stage risk of that company, and if they want to double down, they should do that. Founders fund has done that beautifully over the past decade. And they have a 40% concentration risk on a single deal. Before they even know the deal, they just put it in their docs. Yeah, and we didn't push back. We're totally fine with it.

We love GPs who have conviction. I mean, we invested with a commission. I just told you we were fine being more than 50% of the fund. Like, we love seeing that in our JPs as well. You've talked about right to win. One of the interesting things about right to wins is they're kind of like unicorns. There's many different ways that you could win. In many ways, there's a game theory around it once everybody discovers the right to win,

it starts to be competed away. What are some interesting right to wins that you see today in the market? We have backed a fund that's focused on the Israeli ecosystem for, multiple decades. They have a true right to win. They have a brand in that specific ecosystem. We back the technical, a fund that's incredibly technical that's camped out at Berkeley and Stanford, essentially co-founding and coding with the engineers. That's not something the big firms are going to do. And that's around that extra ends up being $1 to $2 million before anyone even discovers that company that that manager can do. I mentioned we have done a fund and we're the biggest investor in it,

where they're focused on specific sub-sectors, whether it's like energy, retail, insurance, supply chain. And in those areas, they do the research upfront. They co-found the companies. They have a right to win. It's that entrepreneur that they recruit or co-ideate with. Even if they get a term sheet from a bulge bracket firm, they're not going to go with them.

Because from inception to getting to the point of the term sheet, that firm was responsible and helpful throughout that whole process. So they're going to be loyal to that firm. That's the right to win. So we care a lot about if you are not, one of the big firms. Do you have true differentiation at the stage you're playing, meaning technical founder of the pre-seat before anyone else sees it? Or do you have a right to win in that specific end market in the way where you're actually doing the work? So you will see in our

portfolio we have the big firms. We have the firms that I would call them challengers that have done well. I mentioned like the very few firms that have over the past two decades been able to challenge the big firms and maybe join their leagues. And then we have the seat firms. that are playing in a different ballgame, but they have a right to win. Those are the three you would see in our portfolio, typically. We were talking before you were recording about media and specifically very niche media.

Talk to me about that strategy. Yeah, that was you. That's what I was saying. You should raise the fund. You got a real right to win. Because I remember when you started your podcast and like a couple of years later, you had 400 plus and have a real following.

Thank you. For our podcast and for our business, the combination of the one-to-one relationships and also just the crowd and just having a captive mind with GPs, LPs has proven to be extremely useful. You've invested into a fund that has a podcast with very technical CIOs and CTOs. Tell me about that. Oh, yeah, we did invest in one. It's focused on technical founders in security, DevOps, I would say AI engineering, AI opportunities. And one of the GPs there started a podcast a couple of years. ago focused on technical engineers and even engineers and buyers at the enterprise level.

I believe it has the highest subscriber volume of any technical podcast out there. And that's brought deal flow. That's brought a following. That's brought customer introductions. So that's been a great flywheel for the whole organization and for that GP. That's where the alpha is from access on multiple levels. If you think about the speakers they've had on that podcast, it's everyone from like, essentially all the companies we talked about and the CTOs of those companies.

The other thing they did recently is off of the podcast, because it's been so successful, they created an incubator, which is attached to the podcast. It's now a studio. It's in the same building. But companies can come and build. They can benefit from the community that's coming from that podcast because it's engineers. Essentially, a lot of the products are backing are usually used by the engineers themselves. So those entrepreneurs who are thinking about starting a company can now stay in that space for six,

12 weeks, learn from that community, learn all the pinpoints, build their company, and that manager will have the right to win because they created that community to begin with for that founder. You've talked about accolade strategy. You guys are at $8 billion right now. You mentioned you have $500 million funds. How much of that is funds versus co-investments? It's mostly funds. We don't do a lot of co-investments. And there are some LPs that do combs incredibly well and fund the funds to do well. I think we've looked at our track record over the past 25 years, and I think we've done a great job in primary fund investments, and that's what our strength is. By the way, as a firm, that's how we've always operated. We don't go international. We don't have multiple different

strategies. We do venture and growth equity. And we tell our LPs for as long as I've been in the firm, we're not the smartest LP out that we have a singular focus, which is why we've done well. And so most of what we do, long-winded way of saying, is fund investments. Why is that? We think we're better at it than doing direct investments. If we started to do co-investments, I think it's not enough for you to just piggyback off of the GPs, especially in an environment we are in now where there is a lot of adverse selection. Like if we are going to see a series B, series C deal, why are we seeing it versus everyone else in the 3,000 firms out there that are supposed to see those deals?

Now, there's nuanced situations where there's parada from a manager, which is why we could see it. But I also don't know if we would be great at assessing those opportunities as a direct investor. Whereas I think we're really good at assessing those opportunities as a fund investor. When we're underwriting a first-time fund and their right to win, that's where our strength comes in. I don't know if our strength comes in assessing a series B company. By the way, if we did do a lot of these deals, you would have to do a lot of them because you'll probably have some zeros. And you want to make sure you have a diversified portfolio. And trust me, we can lead or co-lead, so we have to participate.

It goes against everything I just said. We would have to be a passive check participating in everything, and I don't even know if we'd be good at it. So I think we know our strengths and weaknesses, and we know where we can play with strength, and we're fiduciary to our LPs, so we stuck to more fund investments. Now, we do do co-investments,

but more on the private equity growth side, so it's a big part of our firm as well where these are more bootstrapped capital efficient software companies. Why do we do those and not on the venture side? you typically invest in the same round as the manager at the same cost basis because they just have capacity in the round and their fund can fill it. So we're fully aligned with the manager. We come in on the same timeline as the manager and even more of a benefit if there's no economics of the deal. So another way, you don't have to diligence whether this is one of the better deals or the manager, one of the worst deals.

If it's a core deal on mandate coming into the same cost basis and only because they don't have enough capacity from their fund, you have great alignment. as a co-investor in that deal. For us, we're investing alongside top funds investing for the first time. What's the failure mode on that? Series B, like five years ago, was the toughest round to invest in because you hadn't fully proven outscale product market fit, but the valuation was high enough, much higher than the Series A. It's like the hardest round to invest in.

Series B today is all over the place. My sense is from the deals you mentioned that you looked at in the deal-by-deal. Forget the nomenclature. They're mature deals. Like, they have product market fit. They've proven it out. GPs are falling over themselves to get into the deals because they were subscribed. If you're going to be in that stage of a company's life cycle, I think it's actually, it makes sense for you to say, the signals I'm going to use is the traction of the company and the current syndicate of the company and try to get as much as I can deal. But you like we will participate because the rounds are just way too big to begin.

Last time we shouted, you said that was one of the most confusing venture environments that you. you've been in your career. Why is that? I mean, everything I just said, I could be wrong. The whole industry has changed. MicroVC is the most competitive I've ever seen. I mean, I keep calling it microVC because that's what it was in 0809 and 10.

But seed is now the most competitive and the most confusing place to invest in. If you're a new seed fund, there has never been a harder time for you to start a fund and to invest your fund. Late stage has emerged as a whole new category in venture because companies are staying private longer and we can talk about why.

AI has broken the rules of fundraising, valuations, company traction, and everything around there, which has led to fundraising at the firm level, fundraising at the company level. I mean, last year, 10 firms made up more than 50% of the fundraise, 18 firms, 80%. You unpack that, why is that the case? But because you have five companies in the last two years that have raised more than 50% of the capital on the whole industry. AI has broken the rules of all those things. So, yeah, that's why I'm confused. And then we talked about the different categories in venture.

In my mind, there's only four. There's pre-seed-seed challengers, big firms, late stage. And every single one of those categories is challenging to navigate today. You're constantly talking to your top GPs or in these funds that are continuously raising these rounds, data bricks, OpenAI, Anthropics, SpaceX. A lot of these reached Series H and beyond. Series M for Databricks. Can you believe that?

Series M, yeah. I met Ali probably two, three years ago when it was like a $10 billion company and it's grown multiple since then. They're almost at that in terms of revenue. What's your sense for why companies want to stay private longer? Well, two reasons.

forget that being a public company is hard and you have to report quarterly, that's been the case for a long time. The two structural changes that have happened more recently is there's more private capital available. So these companies you mentioned, they have options in the private markets to raise scalable capital, to do acquisitions to scale in the way they couldn't before. They can raise billions and billions of dollars in the private markets. By the way, if you told me a private company in 2026 can raise a $30 billion dollar around. I've said no way. Anthropic did that in one month. So you can actually raise sizable capital in the private markets today as a private company if you're one of the 0.1% of those companies. Secondly, a lot of the capital that's being raised by these companies can be

secondaries as well and tender offers coming from the teams themselves. So if you think about using the examples of those companies like employees have been able to get liquidity in the private markets from private capital. In the past, if you were an executive in one of these companies, you were waiting for the public markets to buy a house. Now you can do that through the private markets. So there's less incentive for you as a management team, as an employee group at one of these companies to go public because you can get liquidity in the private markets today. That's why the average unicorn is 12 plus years now. I had a fascinating conversation with Matt Whitheiler from Wellington. And he gave me a couple of stats. There's roughly three trillion.

in the venture market, there's $127 trillion. $3 trillion of what? $3 trillion of capital deployed in the venture market. There's roughly $127 trillion in the public markets. And Wellington did this analysis

of all public tech companies prior to the SpaceX IPO, and only four were predicting more than 30% growth rates. So the public markets are starving for companies. I mean, look at the Best from a Cloud Index. In February, March,

you should look at the SaaS Index, there were six companies trading in 10 times. revenue when says apocalypse hit six companies David two years ago were dozens and dozens above 10 times EV to next 12 months revenue six companies now there's more there's like 13 to 15 because companies like crowd strike data dot cloud flare snowflake they've shown enough acceleration of growth from AI the public markets have rewarded them and palanter is the only company trading at an astronomical revenue multiple now SpaceX as well but if you look at just SaaS companies or bessemer cloud

index palenture is the only one so if i think about the data bricks or anthropic and their growth rates if they were to go public, those growth rates in SaaS don't exist today in the public market. So they would trade at a premium. So it got me really thinking about this, which is my thesis is that all things being equal, if things were truly equal, companies would stay private longer.

Why? The most important thing is just being able to think long term. The public market is just, it's not even a quarterly, it's on a daily basis. Yeah. makes it so difficult to make long-term tradeoffs. And when you're building for the future, you really need to think long-term. And to your point, I think the only reason why even SpaceX taken to the extreme,

why did SpaceX go public after 24 years? It's not because Elon Musk got tired of being a private company. It's because they had literally exhausted the capital markets. You mentioned a statistic. I'll give you another one. 75% of all capital in venture capital in Q1, 2026 was applying to five companies. So another way, if the rounds were 25% more, there would be literally no capital. Forget about the seed rounds. Forget about series A, series B, series C. There would be no capital.

So if there was now instead of $3 trillion, if there was $6 trillion in venture, what does that mean? That means that all these companies could have done next around. Anthropic could have done a $2 trillion. SpaceX could have done a $2 trillion private mark. There's no lack of capital in the private markets that would want even a $1.5.2 They may never say they don't go around fundraising. I don't disagree with you. But there's a lot of capital.

So what's really interesting about this is that a lot of people have the view, well, the private markets, there's some kind of bubble or there's too much capital. And they use history as this guide. But if you think about it between the competition between the private and the public markets, so many of these companies previously would have gone public. The Amazon's the Google. They want public so much earlier. In their life cycle, yeah. In my thesis, as these companies go public and return capital, a lot of that capital is actually going to go from the public markets back to the private markets.

Said another way, the higher returns you have in the private markets, the more capital shifts from the public markets into the private markets and continuously, basically keeping companies private longer and longer. If you put a gun to my head and said, where would the venture market be in five, six years? I think there's still room for another. 2x and kind of total market share. So let's play this out, David. This is a really interesting point you're bringing.

Let's say we go from the $3 to $6 trillion, and these companies can raise another one or two rounds, like a hypothetical SpaceX before going public. When they do go public, even today, like SpaceX and Dropic Open AI, and data breaks, you look at their cap table and they've been raised so much capital in the private markets, getting liquidity for those investors in those companies, it's going to take a really, really long time. It's not six months, 12 months.

It's many, many years potentially. Just because I don't know if we have seen private companies at the scale they are, at the scale they've raised in the private markets, go public and then see full exit liquidity for their initial venture investors or their mid-stage or their late-stage venture investors. So I'm really curious how that's going to play out

over the next few years. And if we go with your analogy of like, well, let's take this amp up another 2X in the private markets. It'll take even longer. So we might be looking at, let me ask you this more concretely. Say you invest in the private markets and tropic at $2 trillion at the end of this year. And it goes out and goes public in Q1, Q2. What are you doing? Are you holding it for the next?

You just invested a year ago. You're a venture investor, late stage. Let's say you came into an SPV. Are you holding it? Or are you selling it for Click 1 and F2X? There's a couple things to unpack there. I was also an investor in SpaceX. One thing that SpaceX did, it's very underrated,

but they really engineered around liquidity. So they have a bunch of unlocks. They do, yeah. It's more formulaic. It's more formulaic. This idea of making hundreds of billions of dollars liquid in six months in the same day, if you think about it from first principles, it's an absurd paradigm,

and it should never be that way to just, like, dump liquidity into the market. It shouldn't even be legal. It's just not good for anybody. So they've created Gates on that. I think a lot of people are going to look at that, and I'd like to see that implemented as a best practice. It also rewards venture investors

that want to stay long the company. They don't have this intense pressure to sell before everybody else sells. So I think that's going to become more commonplace, especially for these big, IPOs, but in the same conversation with Matt, he mentioned, I believe Wellington's roughly a $2 trillion organization, and they're barely getting, in most IPOs, they don't get their desired allocation.

Yeah. There's much more capital that wants to get into those opportunities, which goes back to there's only before SpaceX for growth tech companies in the world. Now there's five. Obviously, you need to be diversified as a public investor as well. So I think this meme around this finite amount of capital that could go into top in the public markets. By the way, this is where I think I'm going to be wrong because I said this earlier, if you had asked me three years ago, can a private company raise $30 billion in one month? I would have probably said no, but it happened.

But if there is $30 billion of capital interest in a private company in one month, I would imagine there is many multiples of that for that company in the public markets. So you're probably right. roughly 10% of retail, even less, was filled at the SpaceX IPO. Right. And that was 30% of the IPO, I think 25 billion roughly. So maybe we'll all be fine that there's enough liquidity in the public markets for these companies. But I do think I'd like companies to revisit the six-month cliff and to engineer. I think you should have some unlock at different types.

And I think it should be... The way SpaceX is doing. Yeah, the way SpaceX is doing. One of the other things that's really making venture difficult to underwrite is AI, and specifically how quickly the AI ecosystem is changing. How does that change how you approach investing? It's really hard. And we don't try to, so we're not macro investors.

We talked to a lot of people about the AI opportunity said, but we're not going to say foundation models are going to be winners, inference is going to be the winners, app player is going to be the winner, so we should only invest there. We're going to invest across the board in the best. managers, they're going to decide where it's best to invest. That being said, the landscape is changing pretty significantly. And there is significant competition app layer.

Foundation models can undercut the app layer as well. We're seeing that on a monthly basis, whether it's the public markets or the private markets. The other thing we're seeing is that there's a lot of experimentation in AI. I'm really thinking about the enterprise level adoption of AI. And we're seeing this a lot at the early stage, which is concerning, where a company can go from one to five, one to ten in ARR. I'm using AR and quotation marks because the company hasn't even seen a year of renewal cycle,

but it's scaling pretty quickly. They don't really have a persona analysis on their customer. And it might be experimental revenue for every, like it could be, hey, I'm going to deploy, I'm going to deploy this solution for three months and see how it goes. And if the company takes that and multiplies it by, for instance, that's my ARR and goes out to raise a round off of that, that's tough. But that happens. And I think experimentation is so.

quick in AI from an adoption standpoint and there's so much competition that especially at the early stages, it's really hard to differentiate. Now, if you're one of the big companies or one of the app player companies and you have scaled to $100 to a billion in ARR pretty quickly and you've shown the renewal cycle, you have great net retention, that's far more sticky. But if you're in the less than a one-year-old company but quickly show traction, it's still a really hard place to invest to figure out if that's going to be the successful company. You've seen a lot of these companies go from zero to 10.

and then down to zero. Well, the problem in the private markets, David, is they stay on the books not at zero for a long time. Like, it's not as efficient. So, like, company that goes from zero to ten can raise at $400, $500,000, $500 million. And say they get stuck there or they go down from the $10 million revenue. You might still market it $400, $500,000 for a number of years. So private markets are not immediately efficient, unfortunately, from that standpoint. I mean, we're still looking at companies from the COVID days that are still marked up at 30, 40 times revenues.

You look at their counterparts in the public markets, they're training it three times. You would think, where is it described? Like, software company that grows at 15, 20% today, that's venture-backed, that was done Vintages 2017 through 22, can't go public. Like, it's not growing enough. It's not like a data bricks. And it's concentrating at a fraction of the revenues is being held at. So I don't think you see that roadkill right away.

But I do think you can see plateauing of performance. And that's something we look at when we underwrite managers as well. is traction of the underlying portfolio companies over a longitude of time. Do you oftentimes see big disparities between marks of different managers? Different managers, not as much, but we do see discrepancies in marks and how we think about where the marks should be. Not always, but sometimes, especially for two reasons. One is with COVID and the valuations were high, and two, Sespocalypse.

Syspocalypse has re-rated non-AI venture-backed software companies. If you are not showing acceleration of growth from AI, if you can't show the resilience, if you're not growing at least 30 to 50% plus, that company today, if you're not in that category, you're not training it 10 times. We're trading it anywhere from 2 to 10 times. And God forbid, your seat-based workflow,

sub-20% growth, like you're in the sub-3, sub-4 times ARR. The private marks on a lot of companies that are in that, not necessarily a workflow, but take a system of record company growing 20, 30%, percent i'll just use a random example 100 million dollar company growing 25 percent organically say there's no price increases organic 25 percent grows break even rule of 25 company what do you do with that company say it's 300 million in arr 25 percent break even rule of 25 can't go public it's not growing

fast enough bankers are not going to want to take it public it's not a sexy ai story it's not accelerating its growth it's not data bricks it's not anthropic open a i etc spacex so what do you you do. Private equity would have bought that company two years ago. They're not interested anymore. They're interested in an AI story. They're interested in an AI native company that can accelerate and be resilient from AI. Maybe there's a strategic acquisition, but I find that hard to believe because even strategics in their boardrooms are talking about how do we reinvent our product from an AI standpoint. So what happens to that company? Let me ask a question for you. It's not a bad company, but it's just not good enough for the exits that would have been

possible two years ago. My first gut reaction was, remind me of search funds. In business schools, you would go and find these mom and pop companies. Right. Are there now going to be 300 million or billion or billion? So let's say this company is sitting on the books at 15 times revenue right now. So $300 million company sitting at $4.5 billion. Well.

What search fund is going to come in and try to buy it for three times? Yeah. If that. You're not wrong. There will be buyers. You can find private equity investors that buy value. and they're fine with a 20, 25% grower, but they are going to pay nowhere close to where it's being valued on the books.

Oftentimes in these sticky situations, you have across asset classes, people can have the luxury of marking mentally an asset at whatever price until there's a come-to-Jesus moment. Somebody needs a liquidity, somebody needs to move forward, and then overnight, it gets sold. Yeah, I agree. So we think a lot about that. I mean, when we underwrite a new manager and we look at their historical performance,

like, we don't just take the marks. We think about contextually where the market is, where the company is playing, and what the actual valuation the company would be. You have concern about the venture market, but you're also very excited about the venture market. What makes you most excited about it outside of just AI? I tell my wife, this is the only job I believe I'm good at, and at this point, I'm locked in for the rest of my career. And the thing I've enjoyed the most about this job is the managers will back and the people will work with. They're just exceptionally talented people. And what excites me the most is, one, we get to work with the smartest people, and I always feel dumb in the room with the managers.

But then you fast forward three, five, ten years, and the manager you backed at that PowerPoint stage where you wrote the PowerPoint with them, their deck, their strategy, you help them set up the firm, and they're massively successful. That is the most gratifying moment in our careers. Like seeing that from inception to the success story actually playing out, if they're one of those top 20 firms out of 3,000, that to me is probably the most gratifying part. of my job. Is that the best example of a relationship compounding in your career? I'm a big believer in not being transactional with people. So I mean, I talk a lot about this like, call me a 10 p.m. I really mean it. And I am a big believer in non-transactional, vulnerable, highly connected relationships with people. And that

has compounds in many different ways. It compounds. It compounds in transparency. It compounds in trust. It compounds in learning from each other. It compounds from growing together. That can be within your team. That can be with GPs and that can be with LPs. So I'm a big believer in that.

That's how I've always operated. And there is a certain group of people that really resonates with that. And I can have seen those relationships truly compound. Just to put my Master's in Psychology hat on, the reason for that is typically people will start with a little voluble. start with a little vulnerability. So they might call you and ask you almost a technical question. I have an LPAC situation. What do you think about this technical question? And as you build trust with that person, they'll give you more and more trust and that starts to really compound.

It starts there and it gets to the point where we are having daily slacks and text messages with our managers. So it gets to that point. It's exactly right. Is that what's compounded the most in your Yes, that's a big part of it externally. I mean, internally, just the team I work with, like, the people I work with are actually, we did an on-site with a manager recently, and we talked about the concept of, can colleagues be friends or not? And there are many firms out there in venture firms where the colleagues are not friends, but they're just professionals working together, but there's really not a big connection outside of work. And there are some firms where that's not the case, they start out as friendships and then that's the foundational layer or they're almost

like, I don't say family members, but they treat each other like family members because they're so close. That's the foundational layer on top of which they build a firm and then there's a professional setting. I'm very fortunate and where the compounding has really happened is the combination of both at Accolade because the partners we have, I work with them for decades plus and it's not just professional relationship, it's not just friendship. I consider them family. And having that combination is really, really hard. I remember when I was in Stanford Business School and I was fortunate enough to run the Venture Club for a year

and in my second year there, and a lot of the first years come and they talk about how they want to intern or they want to work in a venture capital firm. And at that point, we had data from tens and tens of placements we had done over many years from the Venture Club. And it was interesting. the number one reason, typically, a graduating GSB student didn't work out at a venture firm was team and culture.

It wasn't performance, it wasn't compensation, but it was just culture and team. And so my takeaway from that, and when I spoke with a lot of the first years was like, look, you can optimize for brand, you can optimize for firm, for the logos, but you have to make sure the team and the culture you have is the one that can compound. I'm going to use your word, because if it doesn't compound, no matter how, sexy, how great that firm is, it's going to be really hard for you to stay there for decades. The thing that needs to compound is your team and culture internally. You compound that, the rest will work.

Oftentimes think a lot about, as we built this business with Curtis, we're now at seven people. And think about what makes something anti-fragile and the relationship of the founders is extremely underrated. And you even see this, you see this in technology companies, which is where I learned this, which is you have two founders. Let's say they kind of like each other. They go after a business idea. It doesn't work.

Maybe they go after a second one doesn't work, and then they respectfully close the company, and they say the business didn't work. But you have two other founders that all they want to do is work together, and they're compounding their relationship. They go after one business doesn't work, second business, third business, fourth. And the mythology is always rewritten,

which is maybe they had this like pain point or they were like laying on someone's mattress and they thought that they wanted to like travel the world like the Airbnb News story. But when you really get to know these founders, it's really the strength of the founding team and them wanting to find a way to survive in Airbnb's case.

It was literally they were selling serials, which is kind of like this mythology. But why were they selling serials? Why were they selling serials for something that was an absurd business, which was blowing up mattresses and putting them in people's houses? It's because they wanted to work together.

And that part is so underrated. It is completely underrated. I totally agree. If you have that foundation, the external work compounds on that. If you don't have that foundation, it's just really hard to compound. So we're a big believers at this organizational internal compounding. Is that something you look for with GPs as well? We diligence that a lot.

So if we are coming into a fund one and there's a new partnership, that's a big part of what we diligence. Yeah, we've done a lot of solo GPs where that's less an issue. And if we feel like there is a concern, or we have enough questions, we would wait until a fund too. It's actually the one thing that's the hardest to diligence. If you're coming into a fund one and you have a two, three, four GP team and they haven't had a formal historical time to work together, that is the hardest thing to diligence.

Before we started the firm, me and Curtis sat down. We spent two weeks writing our values. If you had told me that a decade ago, I would have said that's the most performative, ridiculous way to start a business. We have GPs who write like tens and hundreds of pages together on values what they want the firm to be, what their concerns are, their vision. And if anything, you probably should do that exercise individual and then come together and really discussed it honestly and transparently. And that shouldn't be a one-week process. There should be multiple months of dating each other to figure out whether you really want to partner together.

So we do spend a lot of time on that process with the GPs if they are coming together for the first time to do Fund 1. If you could go back, you were just graduating Stanford Business School, and you could give yourself one timeless piece of advice. What would that be? My colleagues tell me this all time, be more open-minded. The industry we're in is changing a lot. It's changed far faster than I expected. And I talked about how everything is confusing. It's because if we took a very formulaic, dogmatic approach to venture, it wouldn't be confusing.

We would just say, this is... We'd probably be wrong. We'll probably be wrong, exactly. We would just say, like, this is how we invest, and we're going to keep investing like that, but the market moves away from you. And so one thing, and I've become less and less dogmatic and less and less formulaic over time.

Being formulated is important for that 70-30 we talked about, for the 70% because it does lead to actual consistent returns. But you have to put in the context of the market and where we are in venture. And I'm saying it's confusing is because I'm being more open-minded today than I was when I was graduating from Stanford. I'm because I'm confused more about the venture market

we are able to do new opportunities in those three pockets big firms challengers small firms we're not saying this is where we play this is where we have made money from 2000 to 2010 so we're going to keep doing that to your point we're going to lose money if we do that so being more open-minded it's a paradox of knowledge the more you find out the less you know

the other thing is like we have an incredible culture at the firm where no one person has the answer. I'm a big believer in the process that drives truth-seeking. So we come into a room together, not knowing the answer, but I love the idea of getting to the answer together. We never have this like five people come into a room,

one of them has the answer and is pounding the table, and everyone's like, oh, yeah, great, let's do this. I love coming into a room saying, here's the problem. Even if I have the answer in my head, or I think I have a hypothetical answer in my head, I don't want to say it. I want to come up with that answer together.

So I'm a big believer in the process of truth-making together. And I believe we make better decisions because of that. Well, Rahm, this is an absolute masterclass. Thanks so much for having me on. This is great.